Analysts say both sides may seek a compromise solution that could lead to Chen leaving for the U.S.

"Very busy lately, huh?" Lao Liu greets me one morning on my way to work. "What's going on with this Chen Guangcheng guy?"

My friend, who works for a multinational company, had heard chatter about Chen and wanted to find out more.

I was in a rush so I told him quickly about Chen, the blind activist from a rural town in Shandong who has been mistreated for years by local officials, and how he had slipped into the U.S. embassy in Beijing creating a diplomatic spat with China.

Lao Liu is not alone. Many ordinary Chinese have been in the dark about Chen's dramatic escape.

On May 2, six days after Chen had slipped into the U.S. embassy, the state-run Xinhua news agency declared China was demanding an apology from the U.S. for giving refuge to a Chinese citizen "via abnormal means."

During a regular press briefing, foreign ministry spokesman Liu Weimin said the Chinese side was "strongly dissatisfied with the move."

MUST WATCH

JUST WATCHED

Security tight at Chen hospital

MUST WATCH

He added: "What the U.S. side has done has interfered in the domestic affairs of China and the Chinese side will never accept it."

But many Chinese were baffled by Liu's protests because they knew very little about Chen and his story.

For days Chinese censors have blocked online posts that mention Chen's name, or words related to the lawyer like "blind." They have also ordered the Chinese media to stay away from Chen's story and have selectively blacked out international reports about Chen from networks such as CNN.

"May I ask the spokesman of the nation of rule of law: what is the legal basis of deleting posts of Mr. Chen?

"What is the legal basis of putting him on house arrest for years, for beating him up, for harassing his family, for preventing him to get medical treatment, for allowing his daughter to go to school?"

A few netizens were dismissive of Chen's move. "Chinese who have grievances towards the government may now go into the embassy and throw themselves into the arms of the Yankees," wrote Hacken.

JUST WATCHED

Romney criticizes handling of Chen affair

MUST WATCH

JUST WATCHED

Chen Guangcheng: I want to leave China

MUST WATCH

Chen Guangcheng: I want to leave China04:37

PLAY VIDEO

But for many people, Chen had single-handedly hijacked the U.S.-China Strategic and Economic Dialogue (SED), a two-day meeting that ended Friday.

The SED brings together top officials from both countries, including U.S. Secretary of State Hillary Clinton and her Chinese counterpart, Dai Bingguo. They discuss a range of complex bilateral issues, including trade and investment, cross-border crime, military and strategic concerns, as well as global issues like North Korea, Syria, and Iran.

This year's SED is particularly important, just months away from a presidential election in the U.S. and a once-in-a-decade change of leadership in China, when "stability and smooth transition are the watchwords," according to Robert Lawrence Kuhn, a corporate strategist and author of "How China's Leaders Think".

"Although the SED dealt with the most sensitive military and security matters, it was largely ignored by the world's media because of the solitary acts of a blind human rights activist," Kuhn said.

The Chen story has shone a bright light on China's repressive practices. Yet Beijing is asking for an apology from Washington.

"They are likely asking for an apology because it diverts attention from their obvious embarrassment and shows strength in the face of severe American criticism over human rights," said Kuhn.

"Yet the fact that Chen is now contradicting U.S. officials -- such that, red-faced, they are having to justify their actions in releasing him -- works to reduce China's embarrassment."

This strange turn of events has raised all sorts of unpleasant questions about the way U.S. officials have handled the affair.

The Obama administration risks accusations that it is kowtowing to a repressive Chinese government at a time when democratic reform and regime change has taken place across much of the world in the last year.

Washington is also vulnerable to criticism that it is furthering strategic and economic interests in China to the detriment of America's broader goal of supporting democracy and freedom overseas.

China watchers expect a brief diplomatic standoff.

U.S. officials, they say, will continue to criticize "Chinese human rights" as judged by American values, and their Chinese counterparts will continue to condemn "American interference in China's internal affairs," as judged by China's sense of sovereignty.

"Yet both sides will continue to reach beyond the rhetoric and deal with international stability and economic growth," said Kuhn.

Beijing and Washington, after all, have resolved serious diplomatic crises in the past two decades. These include the NATO bombing of the Chinese Embassy in Belgrade in 1999, and the spy plane collision in 2001.

During these crises, American and Chinese diplomats worked out carefully worded agreements that would allow leeway for each side to "explain" the resolution in terms that would be acceptable to their own people.

Observers regard such tough talk as a prerequisite toward a compromise solution, which could see Chen seeking further medical treatment in the U.S. -- a "face-saving" way to allow the blind activist and family to leave China, as he now says he wishes.